A success story of an Argentine tech company, a fleet of aeroplanes, electric vehicles: the immediate future of Mercado Libre
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After exceeding USD 100,000 million of market capitalization, free-market plans to continue growing by investing in logistics research and development and optimization of operations.
With total revenues of USD 2,646 million, according to its latest financial results, most of it will be used for investments to strengthen the main business in 2021. Just a few months ago, it acquired a fleet of four aircraft in Brazil to streamline distribution processes. The main objective of this decision was to strengthen the commercial alliances it had with different airlines to make shipments more quickly and efficiently.
As for the rest of Latin America, the company of Marco Galperin has invested close to USD 50 million in a collaboration contract with the Aeronaves TSM company to be able to use another four planes, but in Mexico, it will be using the Querétaro International Airport as its centre of operations.
Meanwhile, two large distribution centres were opened in Chile, one of them having a size of around 100,000 square meters. The investment, which is around USD 75 million, seeks to allow the storage of more than 5 million products.
Thanks to the USD 1.1 billion in negotiable obligations that it placed on the market, the eCommerce platform plans to increase the number of its electric vehicles by 14 times. In this way, the electric fleet would exceed 1,000 units and the shipment of products by land would not only be more ecological but also faster.
The debt it issued demonstrates the confidence that investors have in it, since the interest rates on the bonds, one with a 5-year term and the others at 10yrs, were 2.375% and 3.125% in dollars, respectively. Figures that are far from the 10% average offered by local fixed income instruments.
Unfortunately, the growth plans do not fully include Argentina as a result of excessive regulations and a lack of legal certainty.
“Mercado Libre is developing a primary data cloud provider with AWS ( Amazon Web Services ) to accelerate the growth and transformation of the business into a data-driven one to lead the new projects they have. In addition, together with Venzee Technologies, they integrated a system to connect 320 million users using a digital connection ”, Mauro mazza , Research Specialist at Bull Market Brokers. “During January, it repurchased 440 million senior convertible notes and placed debt to have working capital for the new products.”
Mercado Libre is being looked at all the time as a possible competitor to industry giants such as Alibaba or Amazon However, the market that the Argentine company is targeting differs from the public of the alternatives. According to Mazza, “The company compared to Amazon and Alibaba has little penetration in user experience, and it is what it will seek to exploit from now on. The growth potential is intact by focusing on Latin America, mainly in Brazil and Mexico, where the other companies do not exist ”.
On the other hand, regarding the risk of a possible state regulation that affects the company’s projections, the expert in financial markets develops: “Without a doubt, it is the best option for ‘internet retail’ in this context for what is markets emerging markets, superior to Alibaba which is also under persecution from the Chinese regulator. Mercado Libre is positive that it has deployed its market throughout Latin America and that diversifies regulatory risk ”.
For its part, Gustavo Neffa, Director of Research for Traders, is encouraged to compare with the giants: “In terms of returns, the Return on Equity (ROE) is in negative territory (-0.2%) being surpassed by all its comparables, while Return on Assets (ROA) is -0.1%, as a result of the weak accumulated results in recent fiscal periods, but which were offset by recent gains ”.
In turn, the analyst realizes that “the 12M trailing net margin is below the average of the sample, being the one that reflects the lowest margin in the entire comparison with a negative value (-0.12%), accounting for the lag operation that the Argentine company has suffered in recent years ”.
What are the markets saying?
From a technical point of view, interpreting what the market is doing based on the language of prices, it can be observed that the price of Mercado Libre shares continues in a clear upward trend that began to form, practically, from the exit on the company’s stock market. Currently, the individual price is around USD 1,800, a figure that is far from the USD 600 with which it began last year.
Although the well-known Price-Earnings ratio (PER), which measures the number of times that the annual net profits are included in the share price, is USD1,800, an extremely high figure, when dealing with of a relatively new company that is in the growth stage, it can be considered an indicator of future expectations that investors have and not of excessive overvaluation.
However, according to Mazza’s opinion, the market could have discounted much of the events to come. Furthermore, since it is listed on Nasdaq, the technology exchange, it could suffer from high volatility: “Much of what is coming has already been discounted in prices. Although like any internet company, what matters is the PEG ratio (indicator similar to PER but considering future earnings) linked to the ability to generate new business and its impact on net income, the pause may be just around the corner. The sector moves everything as a whole, and Mercado Libre is a leading technology company today on the Nasdaq. Bearing in mind that beyond the fundamentals, which matter, the flows will command and it will not escape a Nasdaq shock “.
For her part, Neffa clarifies: “Mercado Libre’s growth expectations are important. Even Alibaba with a size of USD 700 billion in market capitalization and USD 77 billion in annual sales continues to grow at a rate of more than 25%. Therefore, with less than a tenth the size and a seventh of the penetration of e-commerce in the region, investors have reason to be optimistic about the future of Mercado Libre.
Money transactions carried out through Mercado Pago enjoyed an increase of 146.6% year-on-year. This growth reflects the great potential of this section as a consequence of the low banking in Latin America: in countries like the United States, 93% of the population has a bank account and a credit or debit card, while in our region it is figure reaches only 48%.
In relation to these statistics, Neffa states: “It is important to highlight that internet penetration in Latin America (58% of the population) is higher than that of banking and electronic commerce (3% of the population). In this sense, electronic commerce in the region has great potential for growth, but also for the consolidation of development space for fintech companies ”.
However, the expert announces that “we must be careful in the short term due to the bubble of technology prices”, referring to the growth boom that in recent times all the companies related to technology and internet listed on Nasdaq are going through.
Finally, he warns that “currency volatility and economic instability in the region can be important factors of uncertainty for Mercado Libre’s business.”
Galperin’s company is still in a growth stage. Although in the short term the price of its shares may be affected by the high volatility that the technology market is going through, experts conclude that it has potential for the long term.
Source: Forbes
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